Business Context and Reporting Period
Company: Regency Centers Corporation (Parent Company) and Regency Centers, L.P. (Operating Partnership), collectively "Regency".
Reporting Period: Fiscal year ended December 31, 2009.
Business Model: Regency is a Real Estate Investment Trust (REIT) that owns, operates, and invests in a portfolio of primarily grocery-anchored shopping centers. The Parent Company owns approximately 99% of the Operating Partnership. As of December 31, 2009, the Company managed 400 shopping centers (Combined Basis) totaling 45.0 million square feet of Gross Leasable Area (GLA) across 28 states and the District of Columbia.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Revenues | $489.2 million | $495.9 million |
| Net Income (Loss) Attributable to Common Stockholders | $(56.4) million | $116.5 million |
| Diluted EPS (Loss) | $(0.74) | $1.66 |
| Net Cash Provided by Operating Activities | $193.9 million | $219.2 million |
| Total Debt | $1.89 billion | $2.14 billion |
| Cash and Cash Equivalents | $99.5 million | $21.5 million |
| Combined Basis Occupancy | 92.1% | 92.3% |
| Debt to Asset Ratio (Pro-rata) | 45.9% | 50.0% |
Material Changes vs. Prior Period
- Net Loss: The Company reported a net loss of $56.4 million for 2009, a decrease of $172.9 million from 2008 net income. This was primarily driven by a $104.4 million provision for impairment (including $93.7 million for land held for development) and a $26.1 million pro-rata share of impairment recorded by a joint venture (MCWR II).
- Revenue Decline: Total revenues decreased 1.3% to $489.2 million. While minimum rent increased due to new properties and developments, management fees dropped significantly ($17.7 million decrease) due to the absence of a one-time $19.7 million Portfolio Incentive Return fee earned in 2008.
- Impairment Charges: A $104.4 million impairment charge was recorded in 2009, compared to $34.9 million in 2008. The 2009 charge was largely due to re-evaluating development sites where anchor tenants expressed uncertainty about future store openings due to the weak economy.
- Dividend Reduction: The quarterly dividend was reduced from $0.725 to $0.4625 per share/unit in May 2009 to align with reduced cash flows.
- Debt Reduction: Total debt decreased by approximately $250 million, aided by the repayment of the unsecured line of credit and term loan, and a tender offer to retire $66 million of unsecured notes.
Guidance, Outlook, and Risks
- Outlook: Management anticipates occupancy levels in operating properties could fluctuate between 90.0% and 92.5% during 2010. Average rental rates on leases executed in 2010 are expected to decline by 2% to 8% compared to previous leases.
- Development Strategy: The Company has scaled back its development program, decreasing the number of new projects started and phasing existing developments lacking retail demand. Development activity is expected to remain lower until market conditions improve.
- Liquidity and Capital: The Company maintains a $713.8 million unsecured credit facility with no outstanding balance as of year-end. It expects to require approximately $916.1 million through 2012 to repay maturing debt ($624.7 million), complete developments, and fund joint venture capital calls.
- Key Risks:
- Refinancing Risk: Significant debt maturities in 2010-2012 ($624.7 million for Regency; $1.3 billion for joint ventures) pose refinancing risks in a tight credit market. Declining real estate values may require equity contributions to meet loan-to-value ratios.
- Tenant Bankruptcies: Continued economic weakness may lead to increased tenant defaults and store closings, particularly among video rental stores (e.g., Blockbuster) and other non-anchor tenants.
- Co-investment Partners: The Company relies on joint venture partners to fund their pro-rata share of capital calls and debt refinancing. A partner default could require Regency to fund the shortfall or trigger liquidation.
Important Facts for Investor Verification
- Impairment Specifics: Verify the assumptions used for the $104.4 million impairment charge, specifically regarding the probability of future development and the estimated fair value of land parcels.
- Joint Venture Debt Maturities: Confirm the refinancing status of the $1.3 billion in joint venture debt maturing through 2012 and the capital contribution requirements from partners.
- Forward Sale Agreements: Review the terms of the forward sale agreements entered in December 2009 for 8.0 million shares, including settlement dates and potential dilution impacts.
- Occupancy Trends: Monitor the trend of occupancy rates and rental rate growth on new leases in 2010 to validate management's forecast of 2-8% rental rate declines.
- Dividend Sustainability: Assess whether the reduced dividend of $0.4625 per quarter is sustainable given the projected decline in rental rates and potential further tenant defaults.